November 21, 2023

BuzzFeed Shuts the Door on Scale

I’m particularly excited about today’s newsletter because halfway down, I’ve got a rare op-ed. I think it’s a great read digging into the strategy someone could deploy if they decided to buy Global Cycling Network from Warner Bros. Discovery. But before we get to that, I must ask… Would you tell me a bit more about yourself by filling in this form? Cool… Now let’s start with BuzzFeed.

I’ve been saying for some time that the era of scale has come to an end. But as Upton Sinclair said, “it is difficult to get a man to understand something, when his salary depends on his not understanding it.” And BuzzFeed was, for better or worse, dependent on scale to such a degree, there was no chance that the company would admit that the times had changed.

And yet, even the most stubborn of companies or people have to—when presented with enough evidence—admit that things have changed. According to an Adweek story:

The media company, which houses the editorial titles BuzzFeed, HuffPost, Complex Media, First We Feast and Tasty, is shifting to operate its sales, technical and editorial operations by brand rather than emphasizing its aggregated network.

The brands will also place more focus on growing their direct audiences—part of a broader effort to reduce their reliance on social platforms. In recent years, the relationship between social media companies and news publishers has shifted dramatically, publisher Dao Nguyen told staff.

What was even more shocking was a quote from Nguyen in the memo that Adweek obtained:

“But what has happened in the past two years is that with the fragmentation of audiences, the advertising market challenges and that squeeze from the big tech platforms, the network’s value, and specifically the value of distributed-only audiences, has been rapidly diminishing, and now it’s approaching zero, and some might argue that its value is in fact negative.” 

The emphasis is mine, but wow. For years, the strategy that the BuzzFeed team deployed was one predicated on mass, network-wide scale. The goal wasn’t for a single property or brand to stand on its own, but for the entire BuzzFeed network to grow. The strategy of cobbling together multiple sites—BuzzFeed’s main site, HuffPost, Tasty, First We Feast, Complex—was to reach a certain level of scale that advertisers would have no choice but to work with it.

And it failed. The second the platforms realized that they did not need these publications to give them content, they started to clamp down on traffic leaving their sites. Despite years of people talking about the risks of building on rented land, these massive businesses went head first into it because “shucks, the platforms need us.” And yet, here we are. BuzzFeed has a market cap of $44m and its departing publisher questions if there’s any value whatsoever in the network. Wow.

But hey, better late than never.

Ironically, looking at the publications as independent operations versus an aggregate network will allow BuzzFeed to grow. Instead of the sales team needing to think across the entire network, sellers can focus on their respective products. This allows the publications with the strongest audience to grow revenue even if others in the network don’t work as well.

It’ll also allow the different verticals to move faster. The problem with centralized operations is that it becomes a game of politics. One publication might be trying to get things to continue growing, but is competing with other publications. And so, it’s a constant dance of prioritization. By decentralizing the resources where each publication has its own respective teams, resource allocation becomes much easier to understand. It’s ultimately an exercise in financial planning.

There’s a great book called The Outsiders, which explores eight CEOs that absolutely crushed and outperformed the S&P 500 (Katharine Graham, former Publisher of Washington Post, was one of them). YouExec has a few sentences summing up the book:

The best CEOs are not managers, but capital allocators. They were not charismatic visionaries who actively managed operations. On the contrary, they decentralized operations and centralized capital allocation.

Now, I don’t know if this is how CEO Jonah Peretti is thinking about things. But if it’s not, it should be. He’s made the decision to decentralize operations, which is step one. Step two is to allocate capital based on how the respective publications are doing with the goal of growing cash flow. By decentralizing operations, each publication can excel on its own. What Tasty needs and what HuffPost needs is different; let them operate their businesses independently.

It’s going to be an unbelievably steep uphill climb for BuzzFeed. It has operated with one strategy for so many years, pivoting to this brand-first, owned audience model is going to take time. It has some good assets—First We Feast and Tasty to name a couple—so it might figure it out. Step one was admitting that the strategy needed to change. Step two? Execute.

The case for acquiring GCN

To change things up, I invited a friend of mine, Rameez Tase, co-founder and President at Antenna, to write an op-ed for A Media Operator. Rameez is an avid cyclist, so when he tweeted last week that Global Cycling Network was shutting down its GCN+ app and laid out a high-level thesis on how to accelerate this company’s growth, I knew I wanted to know more.

And so, I invited him to write an op-ed. And in this piece, he breaks down the six steps that an acquirer of GCN would want to take to turn the business into a dynamite one. Read the full piece here.

I do want to talk about a couple of high-level points here.

First, the central idea behind this is the thesis that niche audiences will gravitate to publications that overwhelmingly serve them. The mistake many generalist media companies make is they touch on everything at a very surface level, but never go deep enough. Compare that to something like GCN, which has 8.8 million subscribers across its 12 different YouTube channels, each focused on either a language or type of cycling. That’s depth.

Second, there are certain hobbies and interests that are very price inelastic. Think about luxury, for example. LVMH owns numerous brands where if they increased the price of everything by 25%, I don’t anticipate there would be significant drop off in consumption. On the contrary, an increase in price might make it feel even more exclusive.

The same is true here with cycling. These cyclists will spend thousands of dollars a year on bicycles. Rameez admitted to me that he spends $5,000 to $10,000 a year on bikes, which is just insane to me. But this is his passion. And I suspect for the most diehard of cyclists, the same is true for them. When there is an audience that has that kind of disposable income with that level of passion, it becomes a great market to operate in.

This, by the way, is the investment thesis for Flying Media Group, which has been buying up assets left and right. Someone who can afford to buy a plane or boat is not going to be uncomfortable with spending $50 or $500 on their passion. And that price inelasticity makes monetization so much easier.

Third, niche ideas don’t work in mass scale media companies. GCN could be a much bigger company, but because it is a tiny part of Warner Bros. Discovery, it doesn’t get the love that it might warrant. An independent GCN+ streaming app runs in conflict with WBD’s dream for a monolithic app. And so, if an investor could buy GCN from WBD, it might unlock the ability to grow independently and faster.

Like I said above, I really enjoyed this piece from Rameez and I would encourage everyone to give it a read on A Media Operator.

Thanks so much for reading today. If you have thoughts, hit reply. Become an AMO Pro member to start receiving even more AMO, an invite to the private AMO Slack, early bird access to upcoming events, and so much more. To premium members, there won’t be a piece on Friday. To my readers in the U.S., I hope you have a great Thanksgiving, and to everyone else, have a great rest of your week!